Bond Yields Are Heading Higher

Government bond yields appear to be at last heading higher on perceptions of an improving economy, lower chances for a U.S. fiscal crisis and the prospect of the Federal Reserve ending its loose monetary policy, experts say.

The 10-year Treasury yield has increased over 15 basis points to about 1.87 percent since the start of the year. That could a harbinger of rising rates this year.

"We may see a fairly significant move in the 10-year yield and I think it could go up to as high as 3 percent in the next 12 to 18 months," Mike Crofton, CEO of Philadelphia Trust Co., told CNBC.

With the possibility of going over the fiscal cliff behind us, more investors may move money from safe-haven bonds and into stocks. The CBOE Volatility Index (VIX), a measurement of stock investor fear, dropped almost 40 percent last week, indicating that investors are more willing to jump into stocks, CNBC noted.

"Treasury yields are something that I am paying more attention to, with yields on 10-year Treasurys really close to the psychologically important 2 percent mark," David Rodriguez, a strategist at Daily FX, told CNBC.

"And with all the mess going on in Washington, there is a real risk that bond investors are losing patience with Treasurys given the fact that U.S. has massive deficits."

Minutes of the Federal Reserve Federal Open Market Committee revealed that some board members favor ending the Fed's bond-purchasing program before the end of the year.

However, other experts say a sharp increase in bond yields is unlikely any time soon because unemployment remains high, inflation is still low and the Fed is expected to keep its loose monetary policy for now.

As the largest Treasury buyer, the Fed has been the main reason for extraordinarily low bond rates.

Rates may rise later tin he year if the Fed significantly reduces is bond purchasing sooner than expected, William O'Donnell, a strategist at RBS Securities, told the Financial Times.

“We began 2013 with the Fed minutes adding a new element of risk and uncertainty for the bond market."

Government bond yields appear to be at last heading higher on perceptions of an improving economy, lower chances for a U.S. fiscal crisis and the prospect of the Federal Reserve ending its loose monetary policy, experts say.